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Corporate News *  Missing seized records must be considered while testing ITC claim; duplicate GST demands ordered corrected: Delhi High Court. *  GST appeal can’t be rejected without addressing taxpayer’s grounds: Allahabad High Court. *  Surplus IGST credit can offset CGST, SGST shortfall: GSTAT. *  GST refund can’t be denied when cancelled airfares are returned with tax: GSTAT. *  3 Hearing notices issued within 2 minutes: Gujarat High Court flags portal flaw, seeks report. *  GSTR-9, GSTR-9C filing for FY 2025-26 enabled; pending GSTR-1 and GSTR-3B must be filed first. *  Dupattas are exempt fabrics, can’t be taxed as fibres at 4%: Madras High Court. *  Full transitional credit allowed on capital goods received after GST rollout: GSTAT denies Rs. 6.99 lakh export duty credit. *  GST return mismatch alone can’t justify fraud proceedings: GSTAT orders fresh adjudication under section 73. *  Supplier found non-existent later can’t alone justify input tax credit denial: GSTAT. *  GST interest stops once tax reaches government account, can’t run until return filing: GSTAT. *  Cancelled flat booking- GST refund can’t be denied without excluding COVID period from limitation: GSTAT. *  India notifies rules of origin for India–New Zealand FTA. *  Incomplete E-bike kits classifiable as complete vehicles, but not eligible for CKD duty concession: CESTAT. *  Same GST rate on main input and output can’t by itself bar inverted duty refund: GSTAT. *  Unjust enrichment doesn’t apply to customs refunds from assessments finalised before July 13, 2006: Gujarat High Court. *  CENVAT credit can’t be denied solely because plant And machinery are embedded in earth: Karnataka High Court. *  DFIA exports ineligible for RoDTEP benefits; customs directs repayment with applicable interest. *  Second E-Way bill alone doesn’t prove another supply: GSTAT. *  Bail denied in Rs. 1.19 crore fake GST refund case over risk of accused absconding again: Punjab and Haryana High Court. *  GST registration can be restored after revocation deadline if outstanding dues are paid: Gauhati High Court. *  Multiple GST proceedings over same suppliers: Calcutta High Court directs dept. to share findings for adjudication. *  E-Governance portal services not OIDAR, fixed deposit interest not taxable: CESTAT. *  Rs. 500 Stamp duty required on authority letters for CAs, CMA and GST practitioners in Pune GST division.  *  Rs. 1.10 crore GST refund must be paid in cash after business closure: Allahabad High Court. *  Godown rent attracts 18% GST even when used exclusively for exempt agricultural warehousing: AAR. *  GST portal launches "Multi-State Registration" facility: one master TRN for registration applications across multiple States/UTs. *  RoDTEP scheme extended till 31st December, 2026.  *  Mere disagreement with order can’t override Rs. 20 lakh appeal limit: GSTAT. *  Customs interest can’t be backdated before confiscation liability is determined; nearly 8 year period excluded: Delhi High Court.
Subject News *  GST summons: anticipatory bail maintainable without arrest order, but relief denied in evasion case: Allahabad High Court. *  GST Appeal can’t be decided without hearing taxpayer’s objections to fresh evidence: Allahabad High Court. *  GST ITC can’t be reversed merely because supplier grants discount without reducing tax liability: GSTAT. *  Mere quoting of GST provision is not a valid charge: GSTAT quashes ITC denial. *  Personal hearing mandatory before adverse GST order, even without taxpayer’s request: Rajasthan High Court. *  Parallel bail pleas without full disclosure amount to abuse of process Rs. 43.08 crore GST case sent for fresh hearing: Supreme Court. *  GST refund based on unchallenged advance ruling can’t be recovered using later circular: GSTAT. *  Payment of GST alone doesn’t end interest and penalty liability when tax and interest remain unpaid beyond 30 days of notice: GSTAT. *  GST demand over builders’ 80% procurement rule requires reasoned adjudication: GSTAT. *  Eligible ITC doesn’t automatically entitle taxpayers to compensation cess refund on domestic sales: GSTAT. *  GST confiscation order passed before reply deadline invalid: GSTAT. *  GST interest can’t be retained after tax refund on delayed export receipts: Punjab & Haryana High Court. *  GST appeal can’t be dismissed over pre-deposit shortfall without opportunity To respond: Bombay High Court. *  DGGI SCN can’t be challenged before reply and adjudication:Chhattisgarh High Court. *  GST input tax credit can’t be denied solely due to supplier’s retrospective registration cancellation: GSTAT. *  GST notice must explain fraud allegations; merely repeating section 74 Is not enough:  Himachal Pradesh High Court. *  Audit detection alone can’t justify GST fraud penalty; specific suppression must be proved: GSTAT. *  GST order uploaded only under ‘Additional Notices’ tab without separate intimation set aside: Calcutta High Court. *  Service Tax appeal can’t be rejected for missing pre-deposit proof when payment is already recorded: CESTAT. *  SGST dept. can’t hear appeal against CGST order: Calcutta High Court. *  Mere dispatch of tax order can’t prove service or make appeal time-barred: CESTAT. *  Dealer incentives can’t be taxed merely on ledger entries: CESTAT. *  DGFT orders quashed for failure to supply DRI letter relied upon in SCN: Bombay High Court. *  GST penalty u/s 122(1A) can’t apply to Pre-2021 transactions; unregistered beneficiaries also covered: Delhi High Court. *  Expired E-way bill caused by wrong PIN code can’t justify GST penalty without intent to evade tax: GSTAT. *  Used railway rails can’t be taxed as track material without proof they are fit for reuse: CESTAT. *  Earlier DGGI notice doesn’t bar separate GST demand on different issue: Delhi High Court. *  ITC dispute involves no question of law: GSTAT directs appeal to Vice-President. *  Earlier DGGI notice doesn’t bar separate GST demand On different issue: Delhi High Court. *  No E-way bill required for interstate goods movement in november 2017: GSTAT quashes detention and penalty.  

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GST UPDATE ON ITC REVERSAL ON GOODS LOST DURING MANUFACTURING PROCESS

GST UPDATE ON ITC REVERSAL ON GOODS LOST DURING MANUFACTURING PROCESS
ITC reversal has always been a matter of dispute. A taxpayer obtains tax paid input used or intended to be used in the course or furtherance of business. ITC is availed on such input are required to be reversed in case of situations given under Section 17(5)(h) of CGST Act, 2017.The matter which arises here is whether ITC need to be reversed of goods lost, destroyed or damaged.
The said sub-section (5) of Section 17 ibid starts with following sentence “Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-…
The initial words “Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18” clearly imply that it is a ‘Non-Obstante Clause’. This means that the impugned clause empowers the sub-section to override the effects of any other legal provisions contrary to it. Thus, sub-section (5) of Section 17 overrides sub-section (1) of section 16 and sub section (1) of section 18. So,  it can concluded that ITC on such supplies will be restricted even though the supply of goods or services or both are used or intended to be used in the course or furtherance of business. The sentence ends with the wordings “shall not be available in respect of the following” means ITC is restricted only in case of goods on which it is availed.

In case of loss of goods during the manufacturing process, there is no need to reverse the ITC on the same as per the recent ruling of Madras HIGH court in case of ARS Steels & Alloy International Pvt. Ltd. Vs State Tax Officer where Court held that loss by consumption of input is inherent loss in manufacturing process and it cannot be said to be covered by Sec 17(5)(h) ibid. Therefore, there is no need of reversal of credit on inputs lost during the manufacturing process. Many experts have hailed this positive ruling and it is rightly held also.

Thus, it is very good landmark decision but the dispute does not end here. Many experts have also difference on opinion on goods damaged by fire or other unavoidable reasons. They say that the wording used in Section 17(5) (h) is goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

           

It is said that there is difference in word “destroyed” and “damaged” The literal meaning of word “destroyed” means that nothing is left and is completely damaged. But word “damage” is weaker than destroyed. Something is left. We can clear it with an example, suppose, a building is destroyed with a Bomb. It means that it no longer exists. But if we say that it  damaged then we will imply that some part of building say doors are broken but the building is still in existence.

Therefore, it is contended that there is difference between “destroyed” and “damaged”. When the inputs are completely destroyed then there is need of reversal of credit as per provision of Section 17(5)(h). But if the inputs are damaged only then there is no need of reversal. “Damage of inputs” implies that part of input can be used in manufacturing process or some value can be recovered from these inputs.  

GST is new law and interpretations are subject to judicial pronouncements. These all issues will be settled in times to come. Let us wait and watch…

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